ECB launches staunch defence of cash

European Central Bank executive board member Yves Mersch has given a spirited defence of cash, praising its ability to facilitate privacy, equality and security, insisting there is "no viable alternative" to the humble euro banknote.

  27 10 comments

ECB launches staunch defence of cash

Editorial

This content has been selected, created and edited by the Finextra editorial team based upon its relevance and interest to our community.

The rise of cards, mobile payments and even alternative cryptocurrencies such as Bitcoin over recent years has seen cash in retreat, with many predicting that it will soon become obsolete.

In a speech hosted by Deutsche Bundesbank, Mersch acknowledged the trend away from physical money, revealing that five EU member states - Cyprus, Bulgaria, Belgium, Portugal and Denmark - approached the ECB last year to consult on measures to limit the use of cash.

But Mersch is insistent on cash's value as legal tender, throwing particular scorn on the argument that its anonymity helps criminals.

"Protection of privacy matters to all of us. Privacy protects people from the risk of a surveillance state and thought police. No particular link can be established statistically between cash and criminal activities. The focus must be on the fight against crime. Cash must not be made the scapegoat," he told his audience.

Mersch also praised the ability of cash to ensure equality and participation: "The easy accessibility to cash, especially for the elderly, the socially vulnerable or minors, allows people to participate in society and, for example, allows children to learn how to handle money.

"In particular, when socially vulnerable people use cash, they face none of the barriers involved in applying for a credit card or, despite all their efforts, opening a current account."

In addition, he noted that cash "always works" in a way that more technology-reliant methods of payment do not because of things such as network and power failures.

Concluding, Mersch told his audience: "[P]rinted euro banknotes will retain their place and their role in society as legal tender for a very long time to come. There is no viable alternative to euro cash.

"There is good reason to believe that banknotes don’t only have to take the form of printed paper, cotton or polymer. However, printed banknotes will remain our core business. And if there is public demand for digital central bank money, this should only be a technical variant of cash."

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Comments: (10)

Doug West

Doug West Managing Consultant at Visa Europe

Typical EU head in the sand ! They’ll be trying to push back the tide soon

A Finextra member 

Not very far.reaching, unfortunately. Burocrats hold us back. Also odd remark about it not being true that cash fosters criminality, unless he does not see tax evasion and money laundering as criminal.

Brian Richardson

Brian Richardson CEO at WIZZIT

This is very concerning considering that most illegal activities, monely laundering and funding of terrorist activities etc are utilising cash. Digitalisation offers a solution to all the supposed benefits listed of cash PLUS the advantage of a full audit trial - If only it was easier to open a bank account. By keeping the barriers to financial access in place, the "baddies" will always find the route of least resistance - cash. Problems become worse not better. 

A Finextra member 

What about the European Union digital agenda? The Payment account directive, the Payment sevices directive 2, the Consumer finance action plan and other regulations in the market place sponsoring the electronic payment development as well as the growth of e-commerce? Does not the central bank see a change for the status of cash as a "must take" payment means?

A Finextra member 

Bitcoin, a digital alternative to cash, is far more likely to be used by criminals and corrupt regimes. I suspect that it is the currency of choice for North Korea to buy it's nuclear arsenal.

A Finextra member 

The majority of comments just show that most readers are 'digital utopists', who imagine a perfect world where everyone is happy and satisfied with what their government decides is best for them. The lack of understanding of finance and financial history is also startling.

How can one say that 'digitalisation offers a solution to all the supposed benefits listed of cash PLUS the advantage of a full audit trial'? How is privacy compatible with a full audit trail? If privacy existed on an audit-trail, then the audit trail would be meaningless, and if it didn't, then how is private?!

As a society, do we really suffer more from crime committed by cash users, or is it large corporates being involved in semi-legal tax evasion via the use of tax havens? Did the Bank of Bangladesh theft and the HSBC money laundering charges by the US regulator and a $2 billion fine in 2012 involve cash?!

It is ridiculous to claim that 'cash fosters crime' any more than any means of payment fosters crime. As the previous poster mentioned, I would not be surprised if Bitcoin or any of the other major cryptocurrencies are facilitating the circumvention of laws (such as Chinese capital controls) or North Korean sanctions on a much much larger scale than cash, while offering no tangible benefits for law-obiding small users.

A Finextra member 

Cash is the transaction method of last resort during periods of crisis or natural disaster. We noted in Florida, Peurto Rico, Houston in 2017, after the natural disasters that hit those areas, electronic payment methods were no longer available, access to bank accounts was cut off and cash,  (or barter) was the only way to purchase goods, pay for contactors to restore services, and to survive. If cash was not available during these periods of crisis, people would starve, power would not be quickly restored, infrustracture would not be rebuilt, and some citizens might die. 

A Finextra member 

It is indeed sad if, in a modern society like the USA, you need cash in order not to die in starvation in connection with a natural disaster in a small part of the country. Same also if contractors that restore damaged power lines demand cash payment from the national power grid! We in the payments industry should however use tools already available to us to enable electronic payments also when telecom does not work or when the electricity mains are down in disaster situations. A good part of this is already possible within the existing chip card specifications and battery technology today can drive entire cars, why not payment terminals...

A Finextra member 

In case the electric power system and telecom connections are down you will not be able to access cash through any ATM's either. Here in Sweden we are facing a situation where cash is now used in such a small fraction of POS transactions that it is becoming obsolete within a very short time frame. Politicians are considering measures to force both merchants and banks to accept and supply cash. This would come at a high cost for the society, only to meet the needs of very few individuals.  

Peter Horrell

Peter Horrell Owner Managing Partner at Payment Consulting LLC

It is indeed sad, Hurricane Maria hit Puerto Rico on September 16, 2017 and three months later more than half of the island population was still without power and many people are still without access to potable water, a safe food supply and a method to transact other than cash. To be distributed water must be pumped, and pumps need electricity. Battery technology will not last for three months, stored value chip cards are almost non-existent in the USA, our Debit and Credit cards are online Chip and Signature (mostly). When grid power is down, no amount of generators are going to cut it because power is used to dispense fuel. No generator or transport can run, because batteries cannot be recharged, and petroleum based fuels cannot be distributed.  

How many miles can you drive with a single charge of your electric car, 250km? Then what?

Looking for a use case study for retaining cash, look to Puerto Rico.

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